SHOW ONLY IN EXCEL. NO HARD CODED FORMULAS.

You are the owner of a factory located in a hot tropical climate. The monthly production of the factory is $100,000 except during JuneSeptember, when it falls to $80,000 because of the heat in the factory. In January 2017 you get an offer to install an air-conditioning system in your factory. The cost of the air-conditioning system is $150,000 and its expected life span is 10 years. If you install the air-conditioning system, the production in the summer months will equal the production in the winter months. However, the cost of operating the system is $9,000 per month (only in the 4 months that you operate the system). You will also need to pay a maintenance fee of $5,000 annually in October. Also assume that the depreciation costs are recognized in December of each year and that taxes are paid in December of each year. The depreciation is a straight line to salvage value 0 (which is also the antipated terminal value).

A. What is the Decemeber equivalent pre-tax and pre-depreciation annual profits?

B. What is the NPV of purchasing the air-conditioning system if the discount rate is 12% and corporate tax rate is 35%?

D E G H JK B C AIR CONDITIONING SYSTEM 2 Discount rate 12% 3 Corporate tax 35% 4 Air conditioner cost 150,000 5 Air conditioner life span 6 Air conditional annual depreciation 15,000 #NAME? 7 Air conditioner operating cost (June-September) 9,000